Buying a home is not the easiest task for millennial U.S. citizens due to the poor credit and student loan debt chasing after them. This dire situation has led to rejections for conventional loans from multiple banks and financial institutions. However, the financial crisis looming over your dream will go away when you are aware of the government-backed loan options. USDA and FHA loans are designed to help middle- or low-income earners gain homeownership. So, there is no mandatory requirement for a high-paying job. If you have a working history for at least two years, you are good to go.
But, which one should you choose to invest in? Do USDA and FHA loans offer the same benefits? It is important to figure out the differences among these house loans for bad credit in Houston. The differences will indicate which one is the ideal choice based on long-term goals and financial condition. USDA and FHA loans are rising to popularity among the first-time homebuyers, and the loan features are distinct from the traditional home loans. So, let’s find out what makes these loans more appealing and suitable for your needs.
Mortgage Insurance Premiums
FHA and USDA loans have mortgage insurance premiums; however, USDA offers more affordable insurance costs. The upfront mortgage insurance is 1.75% on FHA loans whereas it’s 1% on USDA home loans. Generally, the borrowers finance the fees in the mortgage instead of paying in cash. When it comes to FHA mortgages, the annual mortgage insurance fee is 0.85% of the loan. On the other hand, the fee is 0.35% for USDA buyers.
One of the crucial parts of the mortgage approval process is the appraisal. The appraisal offers a degree of relief to the lender that the property is sold at fair market value. So, for the appraisal of the USDA loan, an appraiser confirms whether the house is in the determined location. Additionally, the property value cannot be more than 30% of the whole value of the house. Of course, the property should be well-connected with the main roads. FHA loans follow particular requirements for appraisal, and the appraiser needs to fix the present market value. The house must meet the necessary standards for health and safety too.
FHA mortgages need 3.5% of the loan value for a down payment but USDA does not need any down payment. It is possible to finance up to 100% of the property value, and the amount can go more than the purchase price. When you are running a little low on the cash front, USDA loans prove to be widely flexible. Meanwhile, remember – for both USDA and FHA loans, you can negotiate the closing costs. Sometimes, the sellers agree to cover up to 6% for these loans.
In the end, after going through the loan highlights, you can understand one thing – it is not easy to choose a loan to fit your needs. To seek a more informed decision, the role of a lender is unparalleled.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.